Dynamics of productivity change in the Australian electricity industry: Assessing the impacts of electricity reform

The Australian electricity industry has undergone a significant reform, since the mid-1990s. Key changes comprised functional unbundling, market restructuring, regulatory reform, public corporatisation and privatisation. Technological development has been another indisputable constituent of these changes, in the wake of ICT revolution. The principle rationale behind these changes has been that they would improve productivity of the industry and social well-being of people. This paper examines the dynamics of productivity changes in the Australian electricity industry and conducts several hypotheses-testings to identify whether industry's efficiency measures are truly improved as a result of the reform-driven changes. Malmquist Total Factor Productivity Index approach and ANOVA are used for this purpose. The results reveal that the productivity gains in the industry have been largely driven by technological improvements and, to a lesser extent, by reform-induced comparative efficiency gains. On average at national level and for the entire industry, there are efficiency gains that, to large extents, can be attributed to functional unbundling and public corporatisation and, to a lesser extent, to market restructuring and privatisation. The results, however, reveal that the reform-driven changes have made insignificant contribution to comparative efficiency, at the level of thermal generation.

► Dynamics of productivity changes in Australian electricity industry are examined. ► Several hypotheses are also tested against reform-driven changes. ► Technology impact is proved to be far larger than reform-induced impacts. ► Unbundling and corporatisation had larger impacts than market restructuring and privatisation. ► At thermal generation level, no reform-induced impact is encountered.